Michael Levi of the Council on Foreign Relations offers a useful corrective to thus of us who are enthusiastic about the prospects of an energy-driven economic revival in depressed swathes of the industrial Great Lakes region. He uses Joel Kotkin, who has written extensively on the potential of hydrocarbon-oriented “brown jobs” to generate employment growth, as his foil:

There’s no doubt that “brown energy” has been a rare bright spot on the employment landscape. Alas, Kotkin’s numbers appear to be way off. Moreover, even if they were right, his conclusion that “America’s Future Job Growth Lies In Traditional Energy Industries” doesn’t hold up.
Let’s start by taking a look at the total jobs numbers. Kotkin uses data from EMSI that corrects for the fact that standard Department of Labor employment figures don’t include non-payroll employees. This involves, among other things, including every person who files a 1099 for income derived from the industry. Work a couple days in a month for an oil company? Collect royalties in exchange for leasing your land? You’re an employee. For that reason, EMSI warns that “EMSI ‘noncovered’ data (i.e., data on 1099 workers plus more traditional state data, etc.) for oil and gas jobs should be treated with caution”.
That caution appears to be appropriate. Take a look at the BLS Current Population Survey statistics, which are based on household surveys and thus include contract work. They report 886,000 jobs in the sector as of August 2011, of which about 80,000 aren’t on payrolls. This total figure is up from 731,000 in 2010 and687,000 in 2006, for a still impressive but somewhat less eye-popping gain of about 199,000 jobs.

He also makes reference to a recent piece of mine, for which credit is due to Mark P. Mills:

There’s a stronger story to be told on the manufacturing side of the picture. The fact that a new steel mill is opening in Youngstown, Ohio (thanks to Reihan Salam for flagging this yesterday), is indeed striking. On the one hand, it’s hard to see how these sorts of projects add up to much on a national scale, if only because things like steelmaking have become enormously labor efficient (the new mill will employ 400); on the other hand, the geography of job creation has real social consequences, so it’s good to see positive trends in otherwise depressed parts of the country. It’s also important to observe that this isn’t just a “brown jobs” phenomenon: shuttered steel plants are being revived to produce things like wind turbines. Indeed, given the massive amounts of steel required for wind energy (that’s part of why it’s so expensive), I wouldn’t be surprised if it was a bigger customer for these inputs. Perhaps more important is the potential for cheap gas as a fuel source for a manufacturing renaissance in depressed parts of the country. Figures on this are tough to come by, but a lot of smart people seem to think that there’s something there; this is an area where some new analysis would be great.

Levi’s main goal is to manage lofty expectations:

Ultimately, though, a sense of scale is essential. This blog shared some back of the envelope numbers a couple weeks ago that suggested that a massive extractives boom might at best add about 0.2% directly to national GDP growth, barring very big increases in the price of oil and other mined commodities. That’s not the sort of thing that makes a decisive difference to employment. Potentially more important is the possible impact on oil prices (in tandem with steadily more aggressive fuel economy standards), though again, it’s difficult to paint a picture where U.S. actions yield overwhelming change. Bright spots are always welcome where people are struggling, but it’s dangerous to extrapolate them to a point that yields false hope.

The shale gas shock is very good news. (1) It helps us to mitigate the geopolitical risk associated with relying on hydrocarbon sources in the Persian Gulf; (2) shale gas and oil are cleaner than coal, and we have reason to believe that gas-fracking and steerable drilling are technologies that are getting safer and cleaner at a fast clip; and (3) the exploitation of shale formations might create wealth in a number of economically depressed regions, which will have (perhaps small) direct and (perhaps large) indirect employment benefits. The indirect benefits, which I should stress are notional, would flow from the Mills thesis: that new energy wealth in Ohio and Pennsylvania will be poured into large-scale reinvestment in the region. That is a thesis that has yet to be proven or disproven. Levi is right to temper our hopes in this regard.

Yet I do think that the downsides associated with punishing new drilling in this region are considerable. Any employment revival in the Great Lakes region will be built on creating a sustainable platform for a large number of small and medium-sized enterprises, not on landing a handful of megaprojects. It’s about inch-by-inch victories, not about recreating something like the housing boom.